Problem 1:
A stock is currently selling for $40.00. Your analysis indicates that the company should pay $2.00 per quarter in dividends and should continue to do indefinitely. The market requires a return of 20% on stocks of similar risks. Should you buy the stock? Why or why not? Quantify your answer.
Problem 2:
You are considering borrowing a large sum of money. You have the option of borrowing from banks in three different countries. In each country, you will receive U.S. dollars but will repay the loan in currency of the local country.
The following is the information about each proposed loan.
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Country A
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Country B
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Country C
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Stated Loan Interest Rate
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12%
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16%
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20%
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Expected Inflation Rate
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9%
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13%
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17%
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In which country should you make the loan? Why? Quantify your answer.